This article by Guy Martin was first published in the Edge May 2015 issue.
The removal of United States sanctions against Yassin Kadi, a Saudi businessman, last November following a 13-year legal battle highlights the risks faced by those under threat of targeted sanctions, and how to manage them. There are more sanctions regimes now than at any other point in history, and individuals and businesses throughout the Middle East should be aware of the challenges they present.
The European Union (EU), United Nations (UN), United States (US) and other countries increasingly rely on targeted sanctions to achieve foreign policy aims. Increasing geo-political instability means this trend will continue, posing significant risks for individuals and businesses engaged in international trade and finance, as well as charities operating globally.
Targeted sanctions are used for different reasons: to support States in recovering misappropriated State assets (such as Arab Spring countries), improve the conduct of a repressive government (such as Myanmar), combat terrorism, or prevent nuclear proliferation. Yet the ways in which sanctions are imposed are remarkably similar. First, financial restrictions are placed on those believed to be responsible for the offending behaviour, and their bank accounts are frozen without prior notice. Second, it becomes a criminal offence to provide “financial resources” to those targeted. This includes any economic assistance, from paying sums due under contracts, to providing non-cash resources such as food or electricity. A travel ban may also be imposed.
The risk of an individual unwittingly finding themselves subject to sanctions is considerable. Sanctions not only target rogue governments or terrorists but also individuals, businesses or charities who are suspected of “supporting” or “associating with” them.
The impact of sanctions can be devastating. Although they are not criminal measures, stringent banking compliance standards mean that major banks will cut off relations with a listed person, or refuse to conduct banking transactions for them. With ever-larger fines being imposed on banks, they are increasingly cautious. Without access to accounts or credit cards, daily life becomes a struggle. Successful businesses can flounder as they are deprived of banking facilities. Additionally, the reputational damage to a listed person and their family can take years to repair.
However, the stated reasons for listing are often vague and lack supporting evidence, which presents enormous difficulties to persons wishing to challenge the sanctions in court. Critical evidence may also be withheld for security or public policy reasons.
Nevertheless, successful challenges are possible. In 2001 Mr Kadi, a Saudi businessman, was made the subject of US sanctions, and, subsequently sanctions imposed by the UN, the EU, the UK and other countries. The allegations against Mr Kadi were as serious as they were nebulous and vague.
Carter-Ruck, on behalf of Mr Kadi, challenged all of these sanctions through various court actions and legal petitions. In 2008, in a ground-breaking judgment, the highest EU Court annulled the EU’s sanctions against Kadi. For the first time the ECJ held that EU legislation must comply with fundamental human rights even if it implements a UN Security Council Resolution.
Kadi subsequently succeeded in removing all sanctions against him, culminating in the removal of his US listing in 2014, and his case paved the way for other successful challenges and the improvement of judicial safeguards for persons subject to sanctions.
Once listed, the key is to act quickly. The deadline to challenge a listing is often short: in the EU a person has just two months from publication of the listing to file a challenge with the court, and considerable evidence-gathering and preparation must be done in that period.
It is crucial to instruct lawyers with experience of challenging sanctions. Listed persons often spend critical weeks trying to remove their listing through contacts. The result is often (considerable) wasted costs while the person risks missing the deadline for filing a formal challenge. Back-channel discussions can be helpful, but are most effective when conducted in tandem with a legal application.